Investment insights from Capital Group
Rising medical expenses can impede retirement savings. Not only do high costs affect plan participants’ ability to make contributions during working years, they can also consume assets post-retirement. Consider these statistics:
To help contain these costs, many companies have moved to consumer-driven health plans (CDHPs), which carry lower premiums but higher employee deductibles. Such plans are often paired with a tax-advantaged health savings account (HSA) to cover out-of-pocket expenses.
Although HSAs were originally introduced as a cost-saving measure, many employers are realizing that these accounts can work effectively with a defined contribution (DC) plan to promote better retirement outcomes.
HSAs offer several advantages:
As of August 2019, there were 26 million HSAs holding $61.7 billion in assets, a year-over-year increase of 12% for accounts and 20% for assets. Over one million of those accounts are investing a portion of their assets.
For many retirement savers, the full range of HSA benefits may not be immediately obvious. That’s why education is so important. In order to achieve better outcomes with HSAs, participants need to first understand what’s possible.
When planning an HSA education program:
As HSAs grow, plan sponsors are approaching investment options similarly to DC plan investments. Like retirement savers, HSA enrollees have varying risk tolerances and financial situations when investing for future health care costs. An HSA investment menu, then, can address a range of objectives and life stages much like a DC plan menu.
Ideas from DC menu planning that plan sponsors can apply to HSA menu arrangements:
As participants progress through career stages, their goals, financial situations and risk tolerance follow patterns well established in DC menu planning. Because those factors also influence HSA investment decisions, they can be used in HSA investment planning.
To best prepare for a healthy retirement, participants will be well served by a holistic approach to saving. That includes understanding and accessing the full range of their benefits and investment solutions. With support and guidance from plan sponsors and financial professionals, savers can learn to view HSAs as not simply a health care benefit, but a critical pillar of retirement security.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants' plan provider or employer.
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This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.